Chief Political Correspondent for The Sydney Morning Herald

STATE premiers are baulking at parts of the energy reform plan being pushed by the Prime Minister, Julia Gillard, to stop more of the over-investment in electricity wires and poles that has driven massive power price increases in recent years.

Ms Gillard confirmed at the weekend that she would ask the Council of Australian Governments meeting on Friday to back changes that would ''end the gold-plating'' of electricity distribution, potentially avoiding future investment that would have added up to $250 a year to household power bills.

As foreshadowed by Fairfax Media in October, the plan includes new rules to determine the return electricity companies get for their big capital investments and to reduce demand spikes by rewarding consumers who switch off in times of peak usage or who agree that demand management companies switch off non-essential appliances remotely for brief periods, in return for a payment.

Federal and state energy ministers are already close to agreement on the new investment rules, but Ms Gillard is likely to hit resistance over the changes to politically-sensitive electricity tariffs and the proposed powers of the federal regulator.

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''There'll be some things to fight for, some of it is agreed but we will be pressing for a bit more than was agreed by the energy ministers,'' she told Fairfax Media last week.

Her plan for ''cost-reflective pricing'' requires the introduction of smart meters and also more competitive or deregulated electricity tariffs.

Both Queensland, which has temporarily frozen household retail tariffs, and NSW, which has said it intends to stick with regulated prices for households, are resisting rapid change.

Ms Gillard says the new pricing regime should be compulsory only for big users, with medium-sized businesses being allowed to opt out and households that want to reduce bills by managing their time of use being required to opt in. And she has reassured the states she would not be pushing them to sell their electricity assets.

''This isn't about the ownership of electricity assets, it's about the way in which our power system works … it's about addressing the real drivers of high power prices - the overinvestment, the so-called gold-plating of the network,'' she said.

But the acting NSW Energy Minister, Katrina Hodgkinson, said the federal government needed to explain how much consumers would end up paying for smart meters.

Ms Gillard intends to strengthen the Australian Energy Regulator with an extra $23 million in funding over four years, but the states insist the national regulatory ''cop on the beat'' must be fully independent - including being separated from the Australian Competition and Consumer Commission - before it gets more power. This idea is flatly rejected by the federal government.

Ms Gillard is also proposing a new ''consumer challenge panel'' to scrutinise investment decisions and the costs that flow from them - an idea the Coalition spokesman on climate change, Greg Hunt, said was a stunt like the failed grocery and fuel watch schemes.

The Australian Energy Market Commission said COAG was a chance to make some substantial reforms.Chairman John Pierce described the meeting as "an opportunity that only comes around almost once a decade".

"We're really about putting consumers in a position so that they can be better informed about what sort of options are available to them," he told ABC Radio.

Coalition frontbencher Christopher Pyne said that Ms Gillard had "real cheek" to suggest states needed to reduce electricity prices after she had introduced the carbon tax.

"The easiest way to reduce electricity prices is to scrap the carbon tax, everyone knows that," Mr Pyne told Sky News on Monday.

He said that the Coalition would not stand in the way of "good changes" but added that the Prime Minister was trying to distract from the carbon tax with the smart meter proposal.